Health & Welfare News
The pension bomb clock is ticking
- Date 2023-02-01
- Hits 57
A copyrighted material of the Korea JoongAng Daily.
February 1, 2023
The public pension system is a ticking bomb. When it will explode has already been forewarned. According to the fifth National Pension Fund finance estimate released by the Ministry of Health and Welfare last Friday, pension balance will turn red from 2041--and completely run out of money in 2055, two years earlier than the last estimate five years ago.
The projection is based on the assumption that the fertility rate bottoms out from 0.7 next year and stabilizes at around 1.21 in 2046. If birth rate remains low and life expectancy lengthens, the depletion of the pension fund will come sooner. When the baby-boom generation all retire, state pension will see smaller income and larger expenditure. The pension balance is worsening because reform was put off by the previous Moon Jae-in administration despite a depletion warning five years ago.
A civilian advisory panel to the National Assembly special committee on pension reform has proposed the premium rate be raised up to 15 percent of monthly income. Health and Welfare Minister Cho Kyoo-hong said it's not a government outline. But a raise in the premium is inevitable. The rate has stayed at 9 percent since the last hike in 1998 while the OECD average is 18.2 percent.
After a rigorous debate last week, the panel came up with two sets of proposals. The first is a premium rate hike to 15 percent while keeping the income replacement rate at the current 40 percent. The second is the same rate hike in premiums plus a lifting of the replacement rate to 50 percent. The first option could be more effective in reforrm but will face storng resistance, while the second would meet less resistance but have marginal effect in the reform.
The seonc proposal argues the income replacement rate should be raised to address the poverty problem in old age. It deserves consideration given Korea's top rank in senior poverty rate among OECD countries. But increased pension entitlement cannot be the sole answer.
As pensions are returned according to contributions during income-making days, they cannot be greate relief to poverty. That area can be better addressed through an increase in basic pension, subsidization of pension premiums and tailored social security. The advisory board will submit its final report to the National Assembly late this month. The group of experts must present workable solutions rather than supplying a list of options to confuse the public.
All reforms are painful. The government and legislature must work to persuade the public that a bitter pill can be good for the body. Needless to say, the key to pension reform is pain-sharing.